Last week, contributor Adam Fischbaum gave us his top stock for 2021. Today it’s David Sterman’s turn. Still to come: Tom Carr at midweek and Jimmy Butts early next week.
— Bob Bogda, Editor
P.S. Like what you see? Don’t like what you see? Let me know.
Later this decade, as investors look back at a company’s annual sales results, they’ll take note of a very odd dip. The COVID-19 pandemic led to a sharp revenue plunge for so many firms in 2020. That was especially in the case for companies that cater to leisure spending.
Yet as we turn the page to 2021, look for many of those same firms to climb out of the trenches and return back to a steady path of growth.
As just one example, think about Six Flags Entertainment (SIX), an operator of amusement parks. After posting $1.49 billion in sales in 2019, that figure likely plunged below $350 million this year. Notably, 2021 sales will likely claw only part of the way back, perhaps to around $900 million. It will take time for the entire U.S. population to take the COVID-19 vaccine and also take time for consumers to again grow comfortable mingling in a large crowd of strangers. Look for Six Flags to return to full health by 2022.
You can look for a similar plunge-then-rebound scenario in many other crowd-gathering firms such as Ticketmaster parent Live Nation Entertainment (LYV). Trouble is, many stocks like this have already reflected much better days ahead. Shares of Live Nation, for example, are up more than 100% since plunging this past March and are trading near their all-time high.
The key, then, is to find a company that should see an upturn in business — AND a major upturn in share prices. And I think I have found the perfect stock for 2021.
Sabre Corp (SABR)
Just as your car wouldn’t function without engine management software and key information found on the dashboard, the transportation industry would be “flying blind” without Sabre. The company’s technology and datasets help airline, hotel and travel agency customers interact with each other and consumers. Over the years, Sabre has:
- Modernized the software used by travel industry
- Helped dozens of online travel agencies launch and operate their sites
- Developed corporate booking tools
- Built out revenue management tools (which tell airlines and hotels what they can charge to earn peak prices and profits)
- Built a broad set of web-based mobile itinerary tools, and more.
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These tools underpinned $260 billion in travel spending going through its network in 2019. That’s a roughly 40% market share. For example, popular travel booking sites Orbitz and Booking.com use Sabre’s software engine, as do hundreds of hotels and a broad range of major airlines.
As you can imagine, demand for Sabre’s services has plunged as both airplanes and hotels emptied out this year. The company earns a small fee for every airline seat sold and every hotel room booked, in addition to getting annual fees to license its software.
While Sabre secured a record $4 billion in sales in 2019, revenues likely shrunk by two-thirds in 2020, to around $1.3 billion. And look for sales to only partially rebound in 2021, to around $2.4 billion, before moving closer to that 2019 peak in 2022.
Meanwhile, management has been using this time to streamline and strengthen the business ahead of that expected upturn. Fully $200 million in annual costs have been taken out of the business. That has meant painful headcounts, though the company was arguably a bit too bloated from a manpower perspective going into the downturn.
Sabre is also moving forward with new features that will aid clients. As an example, in tandem with Google and its state of-the-art artificial intelligence (AI) technology and advanced machine-learning capabilities, the firm will soon bring Sabre Travel AI to market. It will be the industry’s first AI-driven technology platform. Sabre says the software will enable hotels and airlines to “deliver tailored personalization to travelers that should drive higher conversion rates and build traveler loyalty.” In layman’s terms, this means that once you resume traveling, leisure companies will have a much better understanding of your travel preferences and better customize offers to meet your interests.
On a recent call with investors, Sabre CEO Sam Menke said he believes the company’s technology transformation initiatives “position us for accelerated commercial wins and increased profitability on the other side of the COVID-19 pandemic.”
Sabre is also taking advantage of low interest rates to address the current challenging times by pushing out key debt obligations farther into the future.
In mid-December, the firm repaid a current credit facility and series of bonds that were due in 2023. In their place is a new bond that matures in 2027.
To be sure, the advent of a COVID-19 vaccine has helped shares to move up off their lows. Yet unlike many COVID-19-related stocks (such as Live nation and Six Flags), shares of Sabre, at a recent $11.50, trade for roughly half of their 52-week high.
To be sure, shares of Sabre were range bound in the mid-$20s for much of the five years prior to the pandemic, and I don’t see shares breaking above that range any time soon. But back into the low to mid-$20s seems highly plausible once people are again traveling freely across the globe.
Action to Take: Buy shares of Sabre Corp (SABR) up to $16 and be prepared to sell when they reach $22, roughly double Monday’s closing price of $11.63
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